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Monday, June 16, 2008

Here We Go Again: Free Trade Era Dieing

After the easy credit of the Roaring Twenty’s ended ever so suddenly with the Wall Street Crash of 1929, economically illiterate politicians of every major nation turned suddenly and vehemently against Free Markets and Free Trade. A confused, scared and angry electorate eagerly pushed for the very policies that would result in a global recession and national depressions. Despite the signed protests of one thousand twenty eight economists, the first of many suicidal policies implemented was the Smoot-Hawley Tariff Act. The Federal Reserve System then followed up with a tight monetary policy, thereby landing the mortal blow to both the U.S. and global economy. Retaliation began long before the bill was enacted into law in June 1930 as one country after another moved swiftly towards autarky.

Farm animal stupid, but here we go again:

Free-Trade Era May Be Nearing End Amid Food, Growth Concerns: “After six decades of ever-expanding international commerce, the high tide of free trade is ebbing.

As tens of thousands of South Koreans protest U.S. beef imports, rising commodity prices push nations to keep more food for domestic consumption and the U.S. chooses a new president who might be less supportive of free trade than his immediate predecessors, the world may be facing the end of a cycle that began in the immediate aftermath of World War II.

The liberalization of global trade has come “to a screeching halt,” said Fred Bergsten, director of the Peterson Institute for International Economics in Washington. “It'll take years to rebuild the foundations of free-trade policy.”

The cause is more political than economic.

Fueling the backlash is a convergence of trade-related anxieties: national-security concerns, worries about food safety and sufficiency, the desire to protect local jobs and the environment. In addition, the benefits of trade are often widely dispersed -- think low prices at Wal-Mart -- and entail high adjustment costs, including the loss of manufacturing jobs.”

Now as the GLOBAL credit and real estate bubbles deflate you’ll here more talk of this nature:

“Meanwhile, Democratic presidential candidate Barack Obama says that if elected, he might reopen the world's largest trade deal, the North American Free Trade Agreement with Canada and Mexico.”

Since Barack Obama is a clever fellow, this is probably nothing but a vote grab for him… and something he won’t actually follow up on.

BUT when the masses rage, anything is possible…

“Nowhere is that more evident than in South Korea, where public anger related to a pact aimed at increasing trade with the U.S. by 20 percent is shaking the government of President Lee Myung Bak. Lee has seen his popularity plunge from 50 percent when he took office in February to 17.1 percent in a poll this month by Korea Research and the YTN cable news network; his cabinet this week offered to resign over the dispute.

On June 10, about 80,000 South Koreans flooded the streets of Seoul to protest a proposal to resume beef imports from the U.S. Korea must remove the five-year-old ban, which was designed to prevent the possible spread of mad-cow disease, before the U.S. Congress will consider approving the trade agreement, Senate Finance Committee Chairman Max Baucus of Montana said June 11.”

… anything is possible because votes are a politician’s kryptonite and the masses have a nasty habit of voting themselves straight into poverty.

What do you think will happen to emerging market economies and all those beautiful ETF’s should a couple of trade wars erupt? From Brazil, India, and China to Russia risky assets such as equities will get positively crushed…

When the going gets tough, the guy with the most outrageous ideas seems to get the most attention… and votes.

Housing prices going down? Don’t worry about it. Bail out the clowns that bought them, forgive the loans and freeze house prices.

Inflation pushing up prices? Freeze prices. Make inflation illegal.

Commodities going up? Blame speculators and tax the producers so they don’t go looking for more commodities… oh and, subsidize consumers so that supply and demand signals REALLY get messed up.

If that doesn’t work… find a scapegoat and go immediately to war.

13 comments:

wunsacon said...

Why not require "free trade" partners to abide by similar environmental protections? Hopefully, like Ross Perot back in 1992, that's what Obama has in mind now.

"Free trade" deals that impose no such requirements are bad. They contribute to pollution globally and put the US at a competitive disadvantage.

Anonymous said...

funny how on paper free trade sounds great but the reality is just a way for corporate america to shed costs like pollution controls and quality control/testing. all our food is toxic and no one is responsible......wait i know...we can pass laws that make the gov test all produce.

i think we should just outsource all high paying jobs and have everyone reduce their spending by 80%.

free trade and poverty for all americans.......

Anonymous said...

Globalization is bound to die anyway from continued high energy prices...don't think they are ever going to get back down to the levels that made it all possible.

Jojo said...

Umm, didn't "Free Trade" policies get the USA to where we are today? Screw free trade. What we need is FAIR TRADE.

yoni said...

hey jojo boy

what exactly is your idea of "fair" trade?

who is going to determine what is "fair"? you?

maybe your hero, Obama?

Jojo said...

@Yoni - Well actually yeah, I was thinking that I would be most fair and that I should be the one to decide. In fact, I think I should be declared Most Glorious Supreme World Leader. I'll fix everything (and be fair about it also)!

Meanwhile (as I continue working on engineering my absolute appointment as Most Glorious Supreme World Leader) here is some suggested reading for you:

http://www.epi.org/issuebriefs/244/ib244.pdf
http://www.businessweek.com/print/magazine/content/08_06/b4070032762393.htm
http://www.rgemonitor.com/setser-monitor/252534/borders-still-matter-the-world-is-no-longer-flat/

Danny said...

Ben,

The Fed was forced to follow tight money policies as there was a run on the dollar. Bernanke will most probably face a similar scenario, we shall see how he responds when his inflationary plans are scuddled by a little thing called reality. Mish's post last night covers that scenario well.

As far as the fair trade free trade argument, fair trade is a ridiculous idea. If other countries want to pollute themselves to 'prosperity', it is their right to do just that. We can buy their cheap goods and breathe fresh air. The job problem isn't nearly as affected by so called 'free-trade' agreements as it is by our horrendous monetary policy and our 'privilege' of being able to print money that the rest of the world accepts. A total lack of understanding regarding comparative advantage and division of labor is responsible for this populist outrage against 'free trade', which doesn't really exist in its proper sense. We can blame ourselves for letting the leftists take over our schools and propagating ideas that attempt to defy the LAWS of economics.

Ben Bittrolff said...

Danny,

You stole the words right outta my mouth.

I tried to explain comparative advantage and other finer points of economics and trade to a couple of angry anti-globalization hippies once... Forget about it.

I tried explaining the same to a unionized automotives parts worker once too. Forget about that too.

(He later went on strike over higher wages and the whole factory went under instead. I tried to explain to him that going on strike while his company was bleeding red was suicidal...)

Anonymous said...

Wow! Did you people actually read the article?

Ok - reality - the manufacturing sector is not really losing that many jobs to Free Trade - wanna know where they are going? Thats called technology, automation and robots. The manufacturing sector jobs lost in 3 areas - 11%, 11% and 10%. Guess where? Yes - U.S., EU and China. So if you wanna bitch about Free Trade taking heavy manufacturing jobs - go scream at a robot.

Obama has nothing in mind really - except getting elected. Find the hot button th electorate is relatively retarded about and promise them 'change' amd 'hope' and get those idiots to vote for you.

You cannot tell China what to pollute and what not to pollute - if it gets on paper they will ignore it if they want anyway. So? What to do?

I have a good idea - lets stop trading with them and lose more jobs as a result of less exports in a time when the eocnomy is hurting so we can make damned sure a depression results.

Hmmmmm.... here's another good idea - lets start throwing up tariffs with Canada - our number one energy/oil supplier so we can piss them off and pay more for oil.

This just does not work. Free Trade frees up the mechanism of Comparative Advantage. Go buy 10 IQ point and read about it. Then maybe you will see through Oblama and geet a clue.

Jojo said...

@Danny said "If other countries want to pollute themselves to 'prosperity', it is their right to do just that. We can buy their cheap goods and breathe fresh air."

WRONG Danny! Have you forgotten that pollution knows no country boundaries? Studies have shown that the pollution generated in China's air is blown by winds around the world. Since winds tend to blow west to east, that pollution winds up on the west coast of the USA first as it spreads. Water pollution seeps into groundwater and makes it way to the ocean, where it spread by the currents.

As to free trade, it seems that none of you have read the links I posted above. Shows the quality of the readership here. Don't want to bust your bubbles with new knowledge, eh?

And as to the upcoming election and those ranting about Obama, we have two and ONLY two viable choices if you choose to vote - Obama or McCain/Bush3. Considering the wonderful job that Bush has done on the USA in his two terms, anyone who would even considering voting for McCain needs a lot more than the 10 IQ points offered above.

But then again nobody ever went wrong underestimating the intelligence of American's, so who knows, maybe McCain will win the vote. If so, I hope he lets the soldiers in Iraq who want to come home do so, and then institutes a no-excuse draft to fill the ranks for the next 100 years that he sees us in Iraq (or at least the next 4 of his term in office).

Perplexo said...

If you have governments, you will not have "free trade". The phrase is a piece of political rhetoric, no mare (or less).
it is and always has been the nature of human society that the leadership class messes with the realities ie the economics (physical production/consumption) of society. Whether this is done for purposes of defense (where do all those US fed taxes go?)or other worthy need or is siphoned off to pay for Jenna's spa treatments or other worhthlessness, people expect and need their governments to "distort" what would otherwise happen, which History has shown to be the Rule of the Violent. Fortunately for Humanity once the violence has resulted in the emergence of a leadership class that class will inevitably find peace to be in its interests as a peaceful people produce a greater surplus thus directly benefiting the Leaders... and everyone else.
A related modern problem is the use of air power to maintain wars (and the profits gained therefrom) which would previously have wound down due to the physical circumstances of the fight. EG Afghanistan, w/o air power it would be no different than the 1800's with NATO troops incapable of timely relief being slaughtered by locals...the Taliban were around even in the 1850's you know...
Americans use "free trade" like they use their air power - so long as they are the No. 1 producers/technicians for a given process they're all for free trade. But if the tech changes the US advantage, legislative "Protection" appears (hello DMCA, hello new draconian IP regimes...)
"Free trade" cannot exist within a system of nation-states for "managing the economy" is both what the nation-state exists for, and the reason they exist.People look to their Nations to provide security (ie predictability) in their interpersonal relations, and this entails the enforcement of rights and obligations,(ie loss of "freedom"). Politics is necessary to human life and how to share amongst the members of a society is the primary, essential and original function of politics. The attempt to "abstract" economics from the daily experiences of human life is foredoomed to failure. It's not just "economics" its "political economics" that count...
"Free trade" is used as a code for casting the present economic relations into stone, to preserve the recent (past 200 years) technical dominance of the West, of the North.
Domestically "free trade" is a no-brainer. Between nation-states though "free trade" means in practice following the Rules and Laws of the most powerful or else suffer sanctions (hello Iran).
In other words the doctrine of "free trade" is a means to the end of US global economic dominance (currently - used to be used by Britain too at the height of her Empire). For non-Americans it is not self-evident that "free trade' as it has been in practise would be a benefit.
Where's the free trade in food and fibre, the great ancient basics of human life? Oh, we'll start with computers and aircraft, banks and brokers.....gee just coincidence that these are what USians are best at.
Had the US practiced "free trade" in the 1700-1800's the US would still be a backwater...as Colbert of France said "Free trade will inevitably lead to the weaker trading partner being on its knees..."
Free trade may make good sense for a given country with respect to a given commodity and specific trading partners at a given time, depending on the circumstances.
But it is very very far from being a "one size fits all" good, or from being a benefit to all parties in all cases. There are always losers when things change and this matters...human affairs are always fiendishly complicated and abstracting from the specific to the always-applicable generality is not advisable nor useful in this context, a political context, not a "scientific" one...

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